Tag: Bytedance

TikTok’s Divestment Ouroboros: How the “Sale” Changed the Optics but Not the Leverage

When the TikTok USDS deal was announced under the Protecting Americans from Foreign Adversary Controlled Applications Act, it was framed as a clean resolution to years of national-security concerns expressed by many in the US. TikTok was to be reborn as a U.S. company, with U.S. control, and foreign influence neutralized. But if you look past the press language and focus on incentives, ownership, and law, a different picture emerges.

TikTok’s “forced sale” under the PAFACA (not to be confused with COVFEFE) traces back to years of U.S. national-security concern that TikTok’s owner ByteDance—one of the People’s Republic of China’s biggest tech companies founded by Zhang Yiming among China’s richest men and a self-described member of the ruling Chinese Communist Party—could be compelled under PRC law to share data or to allow the CCP to influence the platform’s operations. TikTok and its lobbyists repeatedly attempted to deflect the attention of regulators through measures like U.S. data localization and third-party oversight (e.g., “Project Texas”). However, lawmakers concluded that aggressive structural separation—not promises which nobody was buying—was needed. Congress then passed, and President Biden signed, legislation requiring either divestiture of “foreign adversary controlled” apps like TikTok or face a total a U.S. ban. Facing app-store and infrastructure cutoff risk, TikTok and ByteDance pursued a restructuring to keep U.S. operations alive and maintain an exit to US financial markets.

Lawmakers’ concerns were real and obvious. By trading on social media addiction, TikTok can compile rich behavioral profiles—especially on minors—by combining what users watch, like, share, search, linger on, and who they interact with, along with device identifiers, network data, and (where permitted) location signals. At scale, that kind of telemetry can be used to infer vulnerabilities and target susceptibility. For the military, the concern is not only “TikTok tracks troop movements,” but also that social media posts, aggregated location and social-graph signals across hundreds of millions of users could reveal patterns around bases, deployments, routines, or sensitive communities—hence warnings that harvested information could “possibly even reveal troop movements,” hence TikTok’s longstanding bans on government-issued devices.

These concerns shot through government circles while the Tok became ubiquitous and carefully engineered social media addiction gripped the US, and indeed the West. (TikTok just this week settled out of the biggest social media litigation in history.) Congress was very concerned and with good reason—Rep. Mike Gallagher demanded that TikTok “Break up with the Chinese Communist Party (CCP) or lose access to your American users.”  Rep. Cathy McMorris Rodgers said the bill would “prevent foreign adversaries, such as China, from surveilling and manipulating the American people.” Sen. Pete Ricketts warned “If the Chinese Communist Party is refusing to let ByteDance sell TikTok… they don’t want [control of] those algorithms coming to America.” 

And of course, who can forget a classic Marsha line from Senator Marsha Blackburn. I don’t know how to say “Bless your heart” in Mandarin, but in English it’s “we heard you were opening a TikTok headquarters in Nashville and what you’re probably going to find is that the welcome mat isn’t going to be rolled out for you in Nashville.”

So there’s that.

TikTok can compile rich behavioral profiles—especially on minors—by combining what users post, watch, like, share, search, linger on, and who they interact with, along with device identifiers, network data, and location signals. At scale, that kind of telemetry can be used to infer vulnerabilities and targeting susceptibility. These exploits have real strategic value. With the CCP’s interest in undermining US interests and especially blunting the military, the concern is not necessarily that “the CCP tracks troop movements” directly (although who really knows), but that aggregated location and social-graph signals could reveal patterns around bases, deployments, routines, or sensitive communities—hence warnings that harvested information could “possibly even reveal troop movements,” and the TikTok’s longstanding bans on government-issued devices.  You know, kind of like if you flew a balloon across the CONUS. military bases.

It must also be said that when you watch TikTok’s poor performance before Congress at hearings, it really came down to a simple question of trust. I think nobody believed a word they said and the TikTok witnesses exuded a kind of arrogance that simply does not work when Congress has a bit in the teeth. Full disclosure, I have never believed a word they said and have always been troubled that artists were unwittingly leading their fans to the social media abattoir.

I’ve been writing about TikTok for years, and not because it was fashionable or politically easy. After a classic MTP-style presentation at the MusicBiz conference in 2020 where I laid out all the issues with TikTok and the CCP, somehow I never got invited back. Back in 2020, I warned that “you don’t need proof of misuse to have a national security problem—you only need legal leverage and opacity.” I also argued that “data localization doesn’t solve a governance problem when the parent company [Bytedance] remains subject to foreign national security law,” and that focusing on the location of data storage missed “the more important question of who controls the system that decides what people see.” The forced sale didn’t vindicate any one prediction so much as confirm the basic point: structure matters more than assurances, and control matters more than rhetoric. I still have that concern after all the sound and fury.

There is also a legitimate constitutional concern with PAFACA: a government-mandated divestiture risks resembling a Fifth Amendment taking if structured to coerce a sale without just compensation. PAFACA deserved serious scrutiny even given the legitimate national security concerns. Had the dust settled with the CCP suing the U.S. government under a takings theory, it would have been both too cute by half and entirely on-brand—an example of the CCP’s “unrestricted warfare” approach to lawfare, exploiting Western legal norms strategically. (The CCP’s leading military strategy doctrine, Unrestricted Warfare poses terrorism (and “terror-like” economic and information attacks such as TikTok’s potential use) as part of a spectrum of asymmetric methods that can weaken a technologically superior power like the US.)

Indeed, TikTok did challenge the divest-or-ban statute in the Supreme Court and mounted a SOPA-style campaign that largely failed. TikTok argued that a government-mandated forced sale violated the First Amendment rights of its users and exceeded Congress’s national-security authority. The Supreme Court upheld (unanimously) the PAFACA law, concluding that Congress permissibly targeted foreign-adversary control for national-security reasons rather than suppressing speech, and that the resulting burden on expression did not violate the First Amendment. The case ultimately underscored how far national-security rationales can narrow judicial appetite to second-guess political branches in foreign-adversary disputes no matter how many high-priced lawyers, lobbyists and spin doctors line up at your table. And, boy, did they have them. I think at one point close to half the shilleries in DC were on the PRC payroll.

In that sense, the TikTok deal itself may prove to be another illustration of Master Sun’s maxim about winning without fighting, i.e., achieving strategic advantage not through open confrontation, but by shaping the terrain, the rules, and the opponent’s choices in advance—and perhaps most importantly in this case…deception.

But the deal we got is the deal we have so let’s see what we actually have achieved (or how bad we got hosed this time). As I often say, it’s a damn good thing we never let another MTV build a business on our backs.

The Three Pillars of TikTok

TikTok USDS is the U.S.-domiciled parent holding company for TikTok’s American operations, created to comply with the divest-or-ban law. It is majority owned by U.S. investors, with ByteDance retaining a non-controlling minority stake (reported around 19.9%) and licensing core recommendation technology to the U.S. business. (Under U.S. GAAP, 20%+ ownership is a common rebuttable presumption of “significant influence,” which can trigger less favorable accounting and more scrutiny of the relationship. Staying below 20% helps keep the stake looking purely passive which is kind of a joke considering Byte still owns the key asset. And we still have to ask if BD (or CCP) has any special voting rights (“golden share”), board control, dual-class stock, etc.)

The deal appears to rest on three pillars—and taken together, they point to something closer to an ouroboros than a divestment: the structure consumes itself, leaving ByteDance, and by extension the PRC, in a position that is materially different on paper but strikingly similar in practice.

Pillar One: ByteDance Keeps the Crown Jewel

The first and most important point is the simplest: ByteDance retains ownership of TikTok’s recommendation algorithm.

That algorithm is not an ancillary asset. It is TikTok’s product. Engagement, ad pricing, cultural reach, and political concern all flow from it. Selling TikTok without selling the algorithm is like selling a car without the engine and calling it a divestiture because the buyer controls the steering wheel.

Public reporting strongly suggests the solution was not a sale of the algorithm, but a license or controlled use arrangement. TikTok USDS may own U.S.-specific “tweaks”—content moderation parameters, weighting adjustments, compliance filters—but those sit on top of a core system ByteDance still owns and controls.

That distinction matters, because ownership determines who ultimately controls:

  • architectural changes,
  • major updates,
  • retraining methodology,
  • and long-term evolution of the system.

In other words, the cap table changed, but the switch did not necessarily move.

Pillar Two: IPO Optionality Without Immediate Disclosure

The second pillar is liquidity. ByteDance did not fight this battle simply to keep operating TikTok in the U.S.; it fought to preserve access to an exit in US financial markets.

The TikTok USDS structure clearly keeps open a path to an eventual IPO. Waiting a year or two is not a downside. There is a crowded IPO pipeline already—AI platforms, infrastructure plays, defense-adjacent tech—and time helps normalize the structure politically and operationally.

But here’s the catch: an IPO collapses ambiguity.

A public S-1 would have to disclose, in plain English:

  • who owns the algorithm,
  • whether TikTok USDS owns it or licenses it,
  • the material terms of any license,
  • and the risks associated with dependence on a foreign related party.

This is where old Obama-era China-listing tricks no longer work. Based on what I’ve read, TikTok USDS would likely be a U.S. issuer with a U.S.-inspectable auditor. ByteDance can’t lean on the old HFCAA/PCAOB opacity playbook, because HFCAA is about audit access—not about shielding a related-party licensor from scrutiny.

ByteDance surely knows this. Which is why the structure buys time, not relief from transparency. The IPO is possible—but only when the market is ready to price the risk that the politics are currently papering over.

Pillar Three: PRC Law as the Ultimate Escape Hatch

The third pillar is the quiet one, but it may be the most consequential: PRC law as an external constraint. As long as ByteDance owns the algorithm, PRC law is always waiting in the wings. Those laws include:

Export-control rules on recommendation algorithms.
Data security and cross-border transfer regimes.
National security and intelligence laws that impose duties on PRC companies and citizens.

Together, they form a universal answer to every hard question:

  • Why can’t the algorithm be sold? PRC export controls.
  • Why can’t certain technical details be disclosed? PRC data laws.
  • Why can’t ByteDance fully disengage? PRC legal obligations.

This is not hypothetical. It’s the same concern that animated the original TikTok controversy, just reframed through contracts instead of ownership.

So while TikTok USDS may be auditable, governed by a U.S. board, and compliant with U.S. operational rules, the moment oversight turns upstream—toward the algorithm, updates, or technical dependencies—PRC law reenters the picture.

The result is a U.S. company that is transparent at the edges and opaque at the core. My hunch is that this sovereign control risk is clearly spelled out in any license document and will get disclosed in an IPO.

Putting It Together: Divestment of Optics, Not Control

Taken together, the three pillars tell a consistent story:

  • ByteDance keeps the algorithm.
  • ByteDance gets paid and retains an exit.
  • PRC law remains available to constrain transfer, disclosure, or cooperation.
  • U.S. regulators oversee the wrapper, not the engine.

That does not mean ByteDance is in exactly the same legal position as before. Governance and ownership optics have changed. Some forms of U.S. oversight are real. But in terms of practical control leverage, ByteDance—and by extension Beijing—may be uncomfortably close to where they started.

The foreign control problem that launched the TikTok saga was never just about equity. It was about who controls the system that shapes attention, culture, and information flow. If that system remains owned upstream, the rest is scaffolding.

The Ouroboros Moment

This is why Congress is likely to be furious once the implications sink in.

The story began with concerns about PRC control.
It moved through years of negotiation and political theater.
It ends with an “approved structure” that may leave PRC leverage intact—just expressed through licenses, contracts, and sovereign law rather than a majority stake.

The divestment eats its own tail.

Or put more bluntly: the sale may have changed the paperwork, but it did not necessarily change who can say no when it matters most. And that’s control.

As we watch the People’s Liberation Army practicing its invasion of Taiwan, it’s not rocket science to ask how all this will look if the PRC invades Taiwan tomorrow and America comes to Taiwan’s defense. In a U.S.–PRC shooting war, TikTok USDS would likely face either a rapid U.S. distribution ban on national-security grounds (already blessed by SCOTUS), a forced clean-room severance from ByteDance’s algorithm and services, or an operational breakdown if PRC law or wartime measures disrupt the licensed technology the platform depends on.

The TikTok “sale” looks less like a divestiture of control than a divestiture of optics. ByteDance may have reduced its equity stake and ceded governance formalities, but if it retained ownership of the recommendation algorithm and the U.S. company remains dependent on ByteDance by license, then ByteDance’s—and by extension the CCP’s—legal leverage over ByteDance—can remain in a largely similar control position in practice.

TikTok USDS may change the cap table, but it doesn’t necessarily change the sovereign. As long as ByteDance owns the algorithm and PRC law can be invoked to restrict transfer, disclosure, or cooperation without CCP approval, the end state risks looking eerily familiar: a U.S.-branded wrapper around a system Beijing can still influence at the critical junctions. The whole saga starts with bitter complaints in Congress about “foreign control,” ends with “approved structure,” but largely lands right back where it began—an ouroboros of governance optics swallowing itself.

Surely I’m missing something.

Good News for TikTok Users: The PRC Definitely Isn’t Interested in Your Data (Just the Global Internet Backbone, Apparently)

If you’re a TikTok user who has ever worried, even a tiny bit, that the People’s Republic of China might have an interest in your behavior, preferences, movements, or social graph, take heart. A newly released Joint Cybersecurity Advisory from intelligence agencies in the United States, Canada, the U.K., Australia, New Zealand, and a long list of allied intelligence agencies proves beyond any shadow of a doubt that the PRC is far too busy compromising the world’s telecommunications infrastructure to care about your TikTok “For You Page.”

Nothing to see here. Scroll on.

For those who like their reassurance with a side of evidence, the advisory—titled “Countering Chinese State Actors’ Compromise of Networks Worldwide to Feed Global Espionage System”—is one of the clearest, broadest warnings ever issued about a Chinese state-sponsored intrusion campaign. And, because the agencies involved designated it as not sensitive and may be shared publicly without restriction (TLP:CLEAR), you can read it yourself.

The World’s Telecom Backbones: Now Featuring Uninvited Guests

The intel agency advisory describes a “Typhoon class” global espionage ecosystem run through persistent compromises of backbone routers, provider-edge and customer-edge routers, ISP and telecom infrastructure, transportation networks, lodging and hospitality systems, government and military-adjacent networks.

This is not hypothetical. The advisory includes extremely detailed penetration chains: attackers exploit widely known “Common Vulnerabilities and Exposures” (CVEs) in routers, firewalls, VPNs, and management interfaces, then establish persistence through configuration modifications, traffic mirroring, injected services, and encrypted tunnels. This lets them monitor, redirect, copy, or exfiltrate traffic across entire service regions.

Put plainly: if your internet service provider has a heartbeat and publicly routable equipment, the attackers have probably knocked on the door. And for a depressingly large number of large-scale network operators, they got in.

This is classical intelligence tradecraft. The PRC’s immediate goal isn’t ransomware. It’s not crypto mining. It’s not vandalism. It’s good old-fashioned espionage: long-term access, silent monitoring, and selective exploitation.

What They’re Collecting: Clues About Intent

The advisory makes the overall aim explicit: to give PRC intelligence the ability to identify and track targets’ communications and movements worldwide.

That includes metadata on calls, enterprise-internal communications, hotel and travel itineraries, traffic patterns for government and defense systems, persistent vantage points on global networks.

This is signals intelligence (SIGINT), not smash-and-grab.

And importantly: this kind of operation requires enormous intelligence-analytic processing, not a general-purpose “LLM training dataset.” These are targeted, high-value accesses, not indiscriminate web scrapes. The attackers are going after specific information—strategic, diplomatic, military, infrastructure, and political—not broad consumer content.

So no, this advisory is not about “AI training.” It is about access, exfiltration, and situational awareness across vital global communications arteries.

Does This Tell Us Anything About TikTok?

Officially, no. The advisory never mentions TikTok, ByteDance, or consumer social media apps. It is focused squarely on infrastructure.

But from a strategic-intent standpoint, it absolutely matters. Because when you combine:

1. Global telecom-layer access
2. Persistent long-term SIGINT footholds
3. The PRC’s demonstrated appetite for foreign behavioral data
4. The existence of the richest behavioral dataset on Earth—TikTok’s U.S. user base

—you get a coherent picture of the intelligence ecosystem the Chinese Communist Party is building on…I guess you’d have to say “the world”.

If a nation-state is willing to invest years compromising backbone routers, it is not a stretch to imagine what they could do with a mobile app installed on the phones of oh say 170 million Americans to pick a random number that conveniently collects social graphs, location traces, contact patterns, engagement preferences, political and commercial interests that are visible in the PRC.

But again, don’t worry. The advisory suggests only that Chinese state actors have global access to the infrastructure over which your TikTok traffic travels—not that they would dare take an interest in the app itself. And besides, the TikTok executives swore under oath to the U.S. Congress that it didn’t happen that way so it must be true.

After all, why would a government running a worldwide intrusion program want access to the largest behavioral-data sensor array outside the NSA?

If you still believe the PRC is nowhere near TikTok’s data, then this advisory will reassure you: it’s just a gentle reminder that Chinese state actors are burrowed into global telecom backbones, hotel networks, transportation systems, and military-adjacent infrastructure—pure souls simply striving to make sure your “For You” page loads quickly.

After all, why would a government running a worldwide network-intrusion program have any interest in the richest behavioral dataset on Earth?

TikTok After Xi’s Qiushi Article: Why China’s Security Laws Are the Whole Ballgame

Xi Jinping’s new article in Qiushi (the Chinese Communist Party Central Committee’s flagship theoretical public policy journal) repackages a familiar message: China will promote the “healthy and high-quality development” of the private economy, but under the leadership of the Chinese Communist Party. This is expressed in China’s statutory law as the “Private Economy Promotion Law.”  And of course we have to always remember that under the PRC “constitution,” statutes are primarily designed to safeguard the authority and interests of the Chinese Communist Party (CCP) rather than to protect the rights and privileges of individuals—because individuals don’t really have any protections against the CCP.  

For U.S. policymakers weighing what to do about TikTok, this is not reassuring rhetoric in my view. It is instead a reminder that, in China, private platforms ultimately operate within a legal-and-political framework that gives state-security organs binding powers over companies, the Chinese people, and their data.

According to the South China Morning Post:

In another show of support for China’s private sector, Beijing has released the details of a speech from President Xi Jinping which included vows the country would guarantee a level playing field for private firms, safeguard entrepreneurs’ lawful rights and interests, and step up efforts to solve their long-standing challenges, including overdue payments.

The full address, delivered in February to a group of China’s leading entrepreneurs, had not been made available to the public before Friday, when Qiushi – the ruling Communist Party’s theoretical journal – posted a transcript on its website.

“The policies and measures to promote the development of the private economy must be implemented in a solid and thorough manner,” Xi said in February. “Whatever the party Central Committee has decided must be resolutely carried out – without ambiguity, delay, or compromise

I will try to explain why the emphasis of Xi’s policy speech matters, and why the divest-or-ban logic for TikTok under US law (and it is a law) remains intact regardless of what may seem like “friendly” language about private enterprise.  It’s also worth remembering that whatever the result of the TikTok divestment may be, it’s just another stop along the way in the Sino-American struggle­—or something more kinetic.  As Clausewitz wrote in his other famous quotation, the outcomes produced by war are never final. (See Book I Chapter 1 aka the good stuff.)  Even the most decisive battlefield victory may have no lasting political achievement.  As we have seen time and again, the termination of one conflict often produces the necessary conditions for future conflict.

What Xi’s piece actually signals

Xi’s article combines pro-private-sector language (property-rights protection, market access, financing support) with an explicit call for Party leadership and ideological guidance in the private economy. In other words, the promise is growth within control, and not just any control but the control of the Party. There is no carve‑out from national-security statutes, no “TikTok exemption,” and no suggestion that private firms can decline cooperation when state-security laws apply consistent with China’s “unrestricted warfare” doctrine.

Recall that the CCP has designated the TikTok algorithm as a strategic national asset, and “national” in this context and the context of Xi’s article means the Chinese Communist Party of which Xi is President-for-Life.  This brother is not playing.

The laws that define the TikTok Divestment risk (not the press releases)

The core concern about TikTok is jurisdiction, or the CCP’s extra-territorial jurisdiction, a concept we don’t fully comprehend. Xi’s Qiushi article promises support for private firms under Party leadership. That means that the National Intelligence Law, Cybersecurity Law, Counter‑Espionage Law, and China’s data‑export regime remain in force and are controlling authority over companies like TikTok. For U.S. reviewers like CIFIUS, that means ByteDance‑controlled TikTok is, by design, subject to compelled, confidential cooperation with state‑security organs. 

As long as the TikTok platform and algorithm is ultimately controlled by a company subject to the CCP’s security laws, U.S. reviewers correctly assume those laws can reach the service, even if operations are partly localized abroad. MTP readers will recall the four pillars of China’s statutory security regime that matter most in this context, being:

National Intelligence Law (2017). Requires all organizations and citizens to support, assist, and cooperate with state intelligence work, and to keep that cooperation secret. Corporate policies and NDAs do not trump statutory duties, especially in the PRC.

Cybersecurity Law (2017). Obligates “network operators” to provide technical support and assistance to public‑security and state‑security organs, and sets the baseline for security reviews and Multi‑Level Protection (MLPS) obligations.

Counter‑Espionage Law (2023 amendment). Broadens the scope of what counts as “espionage” to include data, documents, and materials related to national security or the “national interest,” increasing the zone where requests can be justified.

Data regime (Data Security Law (DSL), Personal Information Protection Law (PIPL), and the Cyberspace Administration of China (CAC) regulatory measures). Controls cross‑border transfers through security assessments or standard contracts and allows denials on national‑security grounds. Practically, many datasets can’t leave China without approval—and keys/cryptography used onshore must follow onshore rules.

None of the above is changed by the Private Economy Promotion Law or by Xi’s supportive tone toward entrepreneurs. The laws remain superior in any conflict such as the TikTok divest-or-ban law.

It is these laws that are at the bottom of U.S. concerns about TikTok’s data scraping–it is, after all, spyware with a soundtrack.  There’s a strong case to be made that U.S. artists, songwriters, creators and fans are all dupes of TikTok as a data collection tool  in a country that requires its companies to hand over to the Ministry of State Security all it needs to support the intelligence mission (MSS is like the FBI and CIA in one agency with a heavy ration of FSB).

Zhang Yiming, founder of ByteDance and former public face of TikTok, stepped down as CEO in 2021 but remains Chairman and key shareholder. He controls more than half of the company’s voting rights and retains about a 21% stake. That also makes him China’s richest man. Though low-profile publicly, he is actively guiding ByteDance’s AI strategy and long-term direction. Mr. Zhang does not discuss this part.  It should come as no surprise–according to his Wikipedia page, Mr. Zhang understands what happens when you don’t toe the Party line:

ByteDance’s first app, Neihan Duanzi, was shut down in 2018 by the National Radio and Television Administration. In response, Zhang issued an apology stating that the app was “incommensurate with socialist core values“, that it had a “weak” implementation of Xi Jinping Thought, and promised that ByteDance would “further deepen cooperation” with the ruling Chinese Communist Party to better promote its policies.

ByteDance’s AI strategy is built on aggressive large-scale data scraping including from TikTok. Its proprietary crawler, ByteSpider, dominates global web-scraping traffic, collecting vast amounts of content at speeds far beyond rivals like OpenAI. This raw data fuels TikTok’s recommendation engine and broader generative AI development, giving ByteDance rapid adaptability and massive training inputs. Unlike OpenAI, which emphasizes curated datasets, ByteDance prioritizes scale, velocity, and real-time responsiveness, integrating insights from TikTok user behavior and the wider internet. This approach positions ByteDance as a formidable AI competitor, leveraging its enormous data advantage to strengthen consumer products, expand generative AI capabilities, and consolidate global influence.

I would find it very, very hard to believe that Mr. Zhang is not a member of the Chinese Communist Party, but in any event he understands very clearly what his role is under the National Intelligence Law and related statutes.  Do you think that standing up to the MSS to protect the data privacy of American teenagers is consistent with “Xi Jinping Thought”?

Why this makes TikTok’s case harder, not easier

For Washington, the TikTok problem is not market access or entrepreneurship. It’s the data governance chain. Xi’s article underscores that private firms are expected to align with the Party Center’s decisions and to embed Party structures. Combine that political expectation with the statutory duties described above, and you get a simple inference: if China’s security services want something—from data access to algorithmic levers—ByteDance and its affiliates are obliged to give it to them or at least help, and are often barred from disclosing that help.

That’s why divestiture has become the U.S. default: the only durable mitigation against TikTok is to place ownership and effective control outside PRC legal reach, with clean technical and organizational separation (code, data, keys, staffing, and change control). Anything short of that leaves the fundamental risk untouched.

Where the U.S. law and process fit

Congress’s divest‑or‑ban statute requires TikTok to be controlled by an entity not subject to PRC direction, on terms approved by U.S. authorities. Beijing’s export‑control rules on recommendation algorithms make a full transfer difficult if not impossible; that’s why proposals have floated a U.S. “fork” with separate code, ops, and data. But Xi’s article doesn’t move the ball: it simply reinforces that CCP jurisdiction over private platforms is a feature, not a bug, of the system.

Practical implications (policy and product)

For policymakers: Treat Xi’s article as confirmation that political control and security statutes are baked in. Negotiated “promises” won’t outweigh legal duties to assist intelligence work. Any compliance plan that assumes voluntary transparency or a “hands‑off” approach is fragile by design.

For platforms: If you operate in China, assume compelled and confidential cooperation is possible and in this case almost a certainty if it hasn’t already happened. Architect China operations as least‑privilege, least‑data environments; segregate code and keys; plan for outbound data barrrers as a normal business condition.

For users and advertisers: The risk discussion is about governance and jurisdiction, not whether a particular management team “would never do that.” They would.  Corporate intent can’t override state legal authority particularly when the Party’s Ministry of State Security is doing the asking.

Now What?

Xi’s article does not soften TikTok’s regulatory problem in the United States. If anything, it sharpens it by reiterating that the private economy advances under the Party’s direction, never apart from it. When you combine Mr. Zhang’s role with Bytedance in China’s AI national champions, it’s pretty obvious whose side TikTok is on.

Wherever the divest-or-ban legislation ends up, it will inevitably set the stage for the next conflict.  If I had to bet today, my bet is that Xi has no intention of making a deal with the US that involves giving up the TikTok algorithm in violation of the Party’s export-control rules and access to US user data for AI training.

TikTok Extended

Imagine if the original Napster had received TikTok-level attention from POTUS?  Forget I said that.  The ongoing divestment of TikTok from its parent company ByteDance has reached yet another critical point with yet another bandaid.  Congress originally set a January 19, 2025 deadline for ByteDance to either sell TikTok’s U.S. operations or face a potential ban in the United States as part of the Protecting Americans from Foreign Adversary Controlled Applications Act or “PAFACA” (I guess “covfefe” was taken). The US Supreme Court upheld that law in TikTok v. Garland.

When January 20 came around, President Trump gave Bytedance an extension to April 5, 2025 by executive order. When that deadline came, President Trump granted an extension to the extension to the January 19 deadline by another executive order, providing additional time for ByteDance to finalize a deal to divest. The extended deadline now pushes the timeline for divestment negotiations to July 1, 2025.

This new extension is designed to allow for further negotiation time among ByteDance, potential buyers, and regulatory authorities, while addressing the ongoing trade issues and concerns raised by both the U.S. and Chinese governments. 

It’s getting mushy, but I’ll take a stab at the status of the divestment process. I might miss someone as they’re all getting into the act.

I would point out that all these bids anticipate a major overhaul in how TikTok operates which—just sayin’—means it likely would no longer be TikTok as its hundreds of millions of users now know it.  I went down this path with Napster, and I would just say that it’s a very big deal to change a platform that has inherent legal issues into one that satisfies a standard that does not yet exist.  I always used the rule of thumb that changing old Napster to new Napster (neither of which had anything to do with the service that eventually launched with the “Napster” brand but bore no resemblance to original Napster or its DNA) would result in an initial loss of 90% of the users. Just sayin’.

Offers and Terms

Multiple parties have expressed interest in acquiring TikTok’s U.S. operations, but the terms of these offers remain fluid due to ongoing negotiations and the complexity of the deal. Key bidders include:

Bytedance Investors: According to Reuters, “the biggest non-Chinese investors in parent company ByteDance to up their stakes and acquire the short video app’s U.S. operations.” This would involve Susquehanna International Group, General Atlantic, and KKR. Bytedance looks like it retains a minority ownership position of less than 20%, which I would bet probably means 19.99999999% or something like that. Reuters describes this as the front runner bid, and I tend to buy into that characterization. From a cap table point of view, this would be the cleanest with the least hocus pocus. However, the Reuters story is based on anonymous sources and doesn’t say how the deal would address the data privacy issues (other than that Oracle would continue to hold the data), or the algorithm. Remember, Oracle has been holding the data and that evidently has been unsatisfactory to Congress which is how we got here. Nothing against Oracle, but I suspect this significant wrinkle will have to get fleshed out.

Lawsuit by Bidder Company Led by Former Myspace Executive: In a lawsuit in Florida federal court by TikTok Global LLC filed April 3, TikTok Global accuses ByteDance, TikTok Inc., and founder Yiming Zhang of sabotaging a $33 billion U.S. acquisition deal by engaging in fraud, antitrust violations, and breach of contract. The complaint alleges ByteDance misled regulators, misappropriated the “TikTok Global” brand, and conspired to maintain control of TikTok in violation of U.S. government directives. The suit brings six causes of action, including tortious interference and unjust enrichment, underscoring a complex clash over corporate deception and national security compliance.

Oracle and Walmart: This proposal, which nearly closed in 2024 (I guess), involved a sale of TikTok’s U.S. business to a consortium of U.S.-based companies, with Oracle managing data security and infrastructure. ByteDance was to retain a minority stake in the new entity. However, this deal has not closed, who knows why aside from competition and then there’s those trade tariffs and the need for approval from both U.S. and Chinese regulators who have to be just so chummy right at the moment.

AppLovin: A preliminary bid has been submitted by AppLovin, an adtech company, to acquire TikTok’s U.S. operations. It appears that AppLovin’s offer includes managing TikTok’s user base and revenue model, with a focus on ad-driven strategies, although further negotiations are still required.  According to Pitchbook, “AppLovin is a vertically integrated advertising technology company that acts as a demand-side platform for advertisers, a supply-side platform for publishers, and an exchange facilitating transactions between the two. About 80% of AppLovin’s revenue comes from the DSP, AppDiscovery, while the remainder comes from the SSP, Max, and gaming studios, which develop mobile games. AppLovin announced in February 2025 its plans to divest from the lower-margin gaming studios to focus exclusively on the ad tech platform.”  It’s a public company trading as APP and seems to be worth about $100 billion.   Call me crazy, but I’m a bit suspicious of a public company with “lovin” in its name.  A bit groovy for the complexity of this negotiation, but you watch, they’ll get the deal.

Amazon and Blackstone: Amazon and Blackstone have also expressed interest in acquiring TikTok or a stake in a TikTok spinoff in Blackstone’s case. These offers would likely involve ByteDance retaining a minority interest in TikTok’s U.S. operations, though specifics of the terms remain unclear.  Remember, Blackstone owns HFA through SESAC.  So there’s that.

Frank McCourt/Project Liberty:  The “People’s Bid” for TikTok is spearheaded by Project Liberty, founded by Frank McCourt. This initiative aims to acquire TikTok and change its platform to prioritize user privacy, data control, and digital empowerment. The consortium includes notable figures such as Tim Berners-Lee, Kevin O’Leary, and Jonathan Haidt, alongside technologists and academics like Lawrence Lessig.  This one gives me the creeps as readers can imagine; anything with Lessig in it is DOA for me.

The bid proposes migrating TikTok to a new open-source protocol to address concerns raised by Congress while preserving its creative essence. As of now, the consortium has raised approximately $20 billion to support this ambitious vision.  Again, these people act like you can just put hundreds of millions of users on hold while this changeover happens.  I don’t think so, but I’m not as smart as these city fellers.

PRC’s Reaction

The People’s Republic of China (PRC) has strongly opposed the forced sale of TikTok’s U.S. operations, so there’s that. PRC officials argue that such a divestment would be a dangerous precedent, potentially harming Chinese tech companies’ international expansion. And they’re not wrong about that, it’s kind of the idea. Furthermore, the PRC’s position seems to be that any divestment agreement that involves the transfer of TikTok’s algorithm to a foreign entity requires Chinese regulatory approval.  Which I suspect would be DOA.

They didn’t just make that up– the PRC, through the Cyberspace Administration of China (CAC), owns a “golden share” in ByteDance’s main Chinese subsidiary. This 1% stake, acquired in 2021, grants the PRC significant influence over ByteDance including the ability to influence content and business strategies.

Unsurprisingly, ByteDance must ensure that the PRC government (i.e., the Chinese Communist Party) maintains control over TikTok’s core algorithm, a key asset for the company. PRC authorities have been clear that they will not approve any sale that results in ByteDance losing full control over TikTok’s proprietary technology, complicating the negotiations with prospective buyers.  

So a pressing question is whether TikTok without the algorithm is really TikTok from the users experience.  And then there’s that pesky issue of valuation—is TikTok with an unknown algo worth as much as TikTok with the proven, albeit awful, current algo.

Algorithm Lease Proposal

In an attempt to address both U.S. security concerns and the PRC’s objections, a novel solution has been proposed: leasing TikTok’s algorithm. Under this arrangement, ByteDance would retain ownership of the algorithm, while a U.S.-based company, most likely Oracle, would manage the operational side of TikTok’s U.S. business.

ByteDance would maintain control over its technology, while allowing a U.S. entity to oversee the platform’s operation within the U.S. The U.S. company would be responsible for ensuring compliance with U.S. data privacy laws and national security regulations, while ByteDance would continue to control its proprietary algorithm and intellectual property.

Under this leasing proposal, Oracle would be in charge of managing TikTok’s data security and ensuring that sensitive user data is handled according to U.S. regulations. This arrangement would allow ByteDance to retain its technological edge while addressing American security concerns regarding data privacy.

The primary concern is safeguarding user data rather than the algorithm itself. The proposal aims to address these concerns while avoiding the need for China’s approval of a full sale.

Now remember, the reason we are in this situation at all is that Chinese law requires TikTok to turn over on demand any data it gathers on TikTok users which I discussed on MTP back in 2020. The “National Intelligence Law” even requires TikTok to allow the PRC’s State Security police to take over the operation of TikTok for intelligence gathering purposes on any aspect of the users’ lives.  And if you wonder what that really means to the CCP, I have a name for you: Jimmy Lai. You could ask that Hong Konger, but he’s in prison.

This leasing proposal has sparked debate because it doesn’t seem to truly remove ByteDance’s influence over TikTok (and therefore the PRC’s influence). It’s being compared to “Project Texas 2.0,” a previous plan to secure TikTok’s data and operations.  I’m not sure how the leasing proposal solves this problem. Or said another way, if the idea is to get the PRC’s hands off of Americans’ user data, what the hell are we doing?

Next Steps

As the revised deadline approaches, I’d expect a few steps, each of which has its own steps within steps:

Finalization of a Deal: This is the biggest one–easy to say, nearly impossible to accomplish.  ByteDance will likely continue negotiating with interested parties while they snarf down user data, working to secure an agreement that satisfies both U.S. regulatory requirements and Chinese legal constraints. The latest extension provides runway for both sides to close key issues that are closable, particularly concerning the algorithm lease and ByteDance’s continued role in the business.

Operational Contingency:  I suppose at some point the buyer is going to be asked if whatever their proposal is will actually function and whether the fans will actually stick around to justify whatever the valuation is.  One of the problems with rich people getting ego involved in a fight over something they think is valuable is that they project all kinds of ideas on it that show how smart they are, only to find that once they get the thing they can’t actually do what they thought they would do.  By the time they figure out that it doesn’t work, they’ve moved on to the next episode in Short Attention Span Theater and it’s called Myspace.

China’s Approval: ByteDance will need to secure approval from PRC regulatory authorities for any deal involving the algorithm lease or a full divestment. So why introduce the complexity of the algo lease when you have to go through that step anyway?  Without PRC approval, any sale or lease of TikTok’s technology is likely dead, or at best could face significant legal and diplomatic hurdles.

Legal Action: If an agreement is not reached by the new deadline of July 1, 2025, further legal action could be pursued, either by ByteDance to contest the divestment order or by the U.S. government to enforce a ban on TikTok’s operations.  I doubt that President Trump is going to keep extending the deadline if there’s no significant progress.

If I were a betting man, I’d bet on the whole thing collapsing into a shut down and litigation, but watch this space.

It’s the Stock, Stupid:  Will the Centrifugal Force of the Public Market Nix the TikTok Divestment?

It’s a damn good thing we never let another MTV build a business on our backs.

In case you were wondering, the founder of TikTok’s parent corporation Bytedance is now reportedly China’s richest man according to the Hurun Rich List at a net worth of US$49.3 billion.  Is that because of “profits”?  Ah, no.  It’s due to his share of the Bytedance stock valuation. This is why any royalty deal with Big Tech that is based solely on a percentage of revenue rather than a dollar rate based on total value is severely lacking.

Revenue is a factor in determining stock valuation, of course.  ByteDance’s first-half 2024 revenue increased to $73 billion, making Bytedance’s revenues almost as big as Facebook but potentially growing faster. (Meta/Facbook’s first half  revenue increased about 25% to $75.5 billion.)

But where does TikTok’s revenue come from? ByteDance’s international revenue reached $17 billion in the first half of 2024, largely driven by TikTok. Non-China revenues for ByteDance rose by nearly 60% during this period. ByteDance continues to leverage TikTok to expand into international e-commerce, sustaining its global popularity. So the company is throwing off a pile of cash–yet they are unable to come up with a functioning royalty system.

Then what would a Bytedance IPO price at?  We kind of have to guess because Bytedance is not publicly traded and doesn’t report its financials to the public (and even if they did, China-based companies got special beneficial treatment during the Obama Administration so PRC companies haven’t reported on the same basis as everyone else until recently).  Continuing the Meta/Facebook comparison, Meta has a market capitalization of $1.4 trillion give or take, while ByteDance’s valuation on the secondary market for private stocks is about $250 billion, according to a CapLight subscriber. 

That gap is not lost on our friends at Sequoia China and other influential investors in Bytedance such as Susquehanna,  SoftBank, and  General Atlantic.  And, of course, the Chinese Communist Party investing through its Cyberspace Administration of China owns “golden shares” in Bytedance that allows it to name directors to the board.  These cats did not put up cold hard cash for a distress asset sale of Bytedance’s principal operating unit aka TikTok.  

Assuming a constant growth rate, Bytedance is trading at a paltry 1.7x 2024 revenues compared to Meta which is trading at about 8.7x its revenues.  There are some difference, like operating profits:  Meta has a 38% operating margin compared to Bytedance at about 25%.  But we all know why Bytedance’s valuation is depressed—the TikTok divestment which seems to be on track to happen on or about January 19.

The Protecting Americans from Foreign Adversary Controlled Applications Act aka the TikTok Divestment Act, Bytedance must sell TikTok.  There’s a pretty good argument that the divestment is enforceable for a variety of reasons.  The law applies not only to TikTok, but also to any entity controlled by China, Iran, North Korea or Russia that distributes an application in the United States.  That’s a pretty significant barrier to IPO riches, or at least one major risk factor that could sour underwriters if not investors.  How to get around it?

As we saw with the Music Modernization Act that solved Spotify’s IPO issues due to the company’s massive copyright infringement business model, if you spread enough cash around Capitol Hill, it’s astonishing what can happen with the vast number of people on the take.  Whatever it costs, lobbyists and lawmakers are cheap dates compared to IPO riches.  Even so, it doesn’t look like the US government is quite ready to allow one of the biggest foreign agent data harvesting and user profiling operations in history to get its snout in the public markets trough.  At least not yet.

But an argument could be made that Bytedance is missing about $1 trillion in market cap.  Greed and resentment are a powerful combination.  To add insult to injury, even Triller managed to get to the public markets, so things could start to get weird while Mr. Tok watches his paper billions evaporate.

Study: The CCP’s Digital Charm Offensive: How TikTok’s Search Algorithm and Pro-China Influence Networks Indoctrinate GenZ Users in the United States

I’ve been concerned for a a good four years and with advancing velocity that TikTok’s is leveraging unsuspecting artists and fans to advance a murky agenda. And frankly duping most of the executives in our business into believing that TikTok was just another addictive social media site. There are many clinical issues with TikTok and the short video format, but behind all that is the algorithm.

CNN reports:

Allowing TikTok to continue to be operated by its current parent company could allow the Chinese government to covertly influence US elections, the Justice Department said in a court filing late Friday.

In a federal appeals court filing, prosecutors raised concerns that TikTok’s algorithm could be used in a “secret manipulation” campaign to “influence the views of Americans for its own purposes.”

“Among other things, it would allow a foreign government to illicitly interfere with our political system and political discourse, including our elections,” prosecutors wrote. The filing added, “if, for example, the Chinese government were to determine that the outcome of a particular American election as sufficiently important to Chinese interests.”

“Allowing the Chinese government to remain poised to use TikTok to maximum effectiveness at a moment of extreme importance presents an unacceptable threat to national security,” prosecutors wrote.

It should come as no surprise that the CCP government treats the TikTok algorithm as something of a state secret and has put export restrictions on the technology in an attempt to block any sale that includes the algorithm (which of course is TikTok’s primary asset).

A recent study from the Network Contagion Research Institute at Rutgers University may shed light on why this is all such a big deal to both state and federal governments in the US. That study finds:

Amplification of Pro-China and Irrelevant Content: TikTok amplifies frontier influencers (travel and lifestyle content accounts) and irrelevant or clickbait material, to crowd out discussion of CCP-driven ethnic genocide and human rights abuses on its platform.

Suppression of Anti-China Content: TikTok’s moderation algorithms significantly augment this suppression. The views-to-likes ratio for anti-China content on TikTok was 87% lower than pro-China content even though the content was liked nearly twice as much.

Cross-Platform Influence Operations: The CCP also uses frontier influencers and stateaffiliated
media to disseminate pro-China narratives to crowd out discussion of human rights abuses on Instagram and YouTube with tourism and culture content.

Psychological Indoctrination: A psychological survey of Americans (n=1214) shows that, among the platforms studied, TikTok screentime positively and uniquely predicted favorability towards China’s human rights record. Notably, heavy users of TikTok (i.e., those with >3 hours of daily screentime) demonstrated a roughly 50% increase in pro-China attitudes compared to non-users. This suggests that TikTok’s content may contribute to psychological manipulation of users, aligning with the CCP’s strategic
objective of shaping favorable perceptions among young audiences.

Strategic Assessment: NCRI assesses that the CCP is deploying algorithmic manipulation in combination with prolific information operations to impact user beliefs and behaviors on a massive scale and that these efforts prove highly successful on TikTok in particular. These findings underscore the urgent need for transparent regulation of social media algorithms, or even the creation of a public trust funded by the platforms themselves to safeguard democratic values and free will.

So there’s that.